subjective probability

Dictionary of Accounting Terms for: subjective probability

subjective probability

estimate of the relative frequency of each of various future outcomes, based on the intuition or experience of the accountant making the estimate. Subjective probability is used in many business situations (i.e., estimating rates and/or dollar returns on investment decisions). Based on his or her experience, assume a treasurer is considering possible interest rates the company can expect to pay on bonds it intends to issue next week. The treasurer feels that interest rates can have only four possible values. The subjective assessment is as follows:

Interest Rate

Probability This Will Happen

9%

.2

9¼%

.3</td>

9½%

.4

9¾%

.1

Dictionary of Insurance Terms for: subjective probability

subjective probability

projections of losses based on qualitative (emotional) rather than quantitative reasoning.

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